Pot bribery case in Garden City may foreshadow issues with medical marijuana in Michigan

So just how lucrative is the medical pot business? Apparently plenty, given one man allegedly offered to pay $20,000 a month in bribes to Garden City officials for a dispensary permit and $150,000 to state officials for a grow license.
Detroit Free Press

It was early December 2016 when the deal went down in the family restaurant parking lot.

An envelope with $15,000 cash tucked inside was handed off to a Garden City official, court records show. The money was a bribe from a restaurant owner who, authorities allege, wanted a permit to operate a medical marijuana dispensary in Garden City.

But unbeknownst to the restaurateur, the official handed the money over to the FBI, triggering what appears to be a broader investigation into Michigan’s exploding medical pot business that has entrepreneurs scrambling to get a piece of the action.

In a forfeiture case that’s unfolding in U.S. District Court in Detroit, the FBI has detailed an alleged bribery scheme that offers a glimpse into how potentially lucrative Michigan’s $1-billion medical pot business could be to entrepreneurs. According to documents filed last week, a Garden City restaurant owner told a public official that he could make $4 million a year from a marijuana grow operation and that he was willing to pay substantial bribes to make it happen.

In one instance, he offered to pay a Garden City official $20,000 per month for a permit — or 20% of the pot sales from the dispensary. Additionally, records show, he offered to pay an extra $150,000 in exchange for a marijuana grow license from the State of Michigan allowing him to grow 1,500 marijuana plants.

The Free Press is not naming the restaurant owner because he has not been charged. These allegations were spelled out in a forfeiture case that was filed last week, in which the government is seeking to keep the $15,000 bribe that was passed off in the parking lot.

Garden City Council Member Mark Jacobs said the city is aware of the bribery allegations and the ongoing FBI investigation. But it does not know the specific details about what happened or how much money was involved.

"We know there is an investigation going on. We are cooperating completely with them. Obviously, whoever it was went to the FBI with the bribery, and we're happy with that," Jacobs told the Free Press on Friday. "Exactly where the FBI is with (the investigation) — that I don't know. All I know is the person who turned the money into the FBI reported it ... It was above board."

Jacobs declined to disclose the name of the city official who delivered the bribe to the FBI. According to court records, the official met with the restaurateur five times in two months.

The FBI declined comment, as did the U.S. Attorneys office.

According to court documents, which did not name any city officials, here is what led authorities to the Garden City restaurant owner and his alleged plan to open a third pot dispensary in the city of 25,000 people.

Sometime last fall, the restaurant owner offered a monthly bribe to a city official in exchange for a permit to operate a medical marijuana dispensary within the city. That person referred him to a second official: the designated person who is authorized to issue the permit.

On Sept. 28, 2016, records show, that second official met with the restaurant owner at his business and was offered $20,000 a month for the dispensary permit.

The next day, the two individuals met again at the restaurant. During that meeting, the restaurant owner expressed his thoughts about obtaining a marijuana grow license from the state of Michigan and told the official that he could make about $4 million a year from a marijuana grow operation.

“Additionally, (the restaurant owner) told the second official that he and his partners would be willing to pay $150,000 in exchange for the marijuana grow license,” Assistant U.S. Attorney Shankar Ramamurtny wrote in a court filing.

The $150,000 would go into an escrow account until the license was received, records show. The man’s partners were described as two family members.

Then came talk of a variance.

The official advised the restaurateur that to obtain a permit, a variance is required from the city council. The restaurateur said the official would be compensated if a permit were granted.

About two weeks later, on Nov. 16, the official told the restaurateur that he had spoken with some members of the Garden City council and that they “would need money to approve the variance,” the document states.

The restaurateur responded: “Whatever it takes.”

Two weeks later, the two met again in the family restaurant, where the official said that three Garden City council members had agreed to approve the variance. But there was a price to pay: “Each of the three council members wanted $5,000 each for their approval in granting the medical marijuana dispensary,” the filing states.

The restaurant owner replied: “That’s not a problem.”

Then came talk about alleged bribes for folks in Lansing.

The restaurant owner said he was in the process of obtaining a permit from the state for a grow operation involving 500 plants. That’s when the official said that he/she had previously spoken to a “person in Lansing who could assist in obtaining a permit for (the restaurant owner) to grow 1,500 plants. In exchange, (the restaurant owner) would be required to place $150,000 in an escrow account.”

The restaurant owner said he would talk to his people about getting the funds in an escrow account, records show.

On Dec. 2, the deal went down.

In the parking lot of the family restaurant, the owner and two of his relatives met with the public official, who told him three council members were willing to approve the variance and then asked him if he “had something for me.”

The restaurant owner responded: “Take care of business, guys.”

A man handed the official the envelope. The cash was counted. It was $15,000. But the restaurant owner and his cohorts would get duped.

That same day, the official met the FBI at an undisclosed location on Ford Road in Garden City and handed over the $15,000.

“The second official subsequently voluntary turned the envelope over to the FBI,“ prosecutors wrote in court documents. “(The money) belongs to the government because it was voluntary given to the FBI.”

Moreover, the prosecutor wrote, the $15,000 was from ill-gotten gains.

Defense experts believe the government will likely prevail in its effort to keep the money, noting it's a common practice for the government to seek forfeiture of money seized in criminal investigations — even if criminal charges have not been filed yet.

"In the end, you would expect that they would file a forfeiture claim because the money is the alleged proceeds of illegal activity," said prominent local defense attorney James Thomas, who likened bribe money to drug money.

"This is sort of like a drug deal. If someone buys cocaine from someone and gives them $25,000 — if the government gets their hands on it, it's forfeitable," Thomas said.

The Garden City case comes as Michigan’s medical marijuana industry is poised to explode with new state regulations and taxes on the dispensaries that will sell the weed.

Michigan voters legalized medical marijuana in 2008, but bare-bones regulation of the drug created a so-called Wild West landscape, with patients concerned about safety, quality and security of supply. Initially, Michigan courts ruled that only marijuana sales between registered caregivers and patients were legal, meaning the dispensaries used by many patients shut down frequently and largely relied on local officials turning a blind eye in order to operate.

Those days are over.

Michigan’s pot industry is about to implode under a new package of bills that Gov. Rick Snyder signed into law in September, which require state-issued licenses for large-scale growers, processors, testers, secure transporters and retailers of medical marijuana. The new laws also require businesses seeking permits to undergo extensive background checks and give communities the authority to allow and zone for medical marijuana dispensaries within their borders.

Under Michigan’s old medical marijuana law, a caregiver could grow up to 12 marijuana plants for each patient and couldn't serve more than five patients. The law, however, was vague about dispensaries and led to problems in some cities like Detroit and Lansing, which did not prioritize enforcement while other towns shut down businesses.

The new laws create three classes of growers: people who can grow up to 500 plants, up to 1,000 plants or up to 1,500 plants. They also create five classes of licenses — those for growers, testing facilities, transporters, the seed-to-sale tracking and dispensaries. Communities can decide whether and where they'll allow dispensaries to operate and charge an annual fee of up to $5,000 per dispensary.

Across the nation, eight states have legalized marijuana for medical and recreational uses. Another 20 states have medical marijuana laws and 17 more have laws legalizing medical cannabidiol — a strain of marijuana that provides pain relief without the psychoactive high that accompanies traditional marijuana.

On Friday, Gov. Rick Snyder made long-awaited appointments to a five-member board that will control medical marijuana licenses in Michigan. The board includes former Speaker of the House Rick Johnson, a former lobbyist with ties to the medical marijuana industry who was named chairman of the influential board. Johnson, a lobbyist since 2005, worked on the medical marijuana legislation, though he said he had no paying client.

Research shows the medical marijuana business is wildly lucrative.

Last year, the marijuana industry saw $6.8 billion in sales and is projected to grow to $21.6 billion by 2021, according to Arcview Market Research, a California-based company that tracks the marijuana industry. Those figures are for recreational and medicinal marijuana.

In Michigan, medical marijuana revenues are estimated at more than $700 million under full legalization, matching revenues seen in eight other states.

As Sen. Tonya Schuitmaker, R-Lawton, who opposed the new pot laws, has said: "There’s huge money to be made."

Jacobs, the Garden City councilman, agreed.

"From what I've heard, it is a lucrative business," Jacobs said. "But I don't know it's the kind of business we want all over our city."